Lawsikho Blog

Learn the practical aspects of how a personal guarantor can apply to initiate an insolvency resolution process, the documents needed to be annexed to such an application, and the procedure followed by NCLT to adjudicate such an application. If you are a business owner or an aspiring insolvency professional or a lawyer, this article will help you navigate the process under Chapter III of the IBC. 

Introduction

Let me talk about this exciting case. 

In my previous role with a mid-sized firm in early 2020, we worked on a one-of-a-kind matter. Thanks to our client Kabir. 

So, when Kabir signed as a personal guarantor for a company (where he is a director) for obtaining a loan of 10 crore, it was beyond his comprehension that in no time, the focus would shift from the boardroom to his living room. The company fell into deep financial troubles, and the lenders came asking for unpaid amounts. Suddenly, Kabir, once just an underwriter on paper, became the target of constant recovery proceedings. His assets were in jeopardy and every legal route led to him.

Kabir quickly turned to us for advice. 

Then, like a twist in a daily soap that no one saw coming, we advised Kabir to take charge and file for insolvency rather than wait for creditors to trap him.  

What a splendid advantage we took of the newly enforced provisions on the corporate insolvency resolution process by debtors and creditors!  

Our rationale was simple, under the ever-evolving framework of the Insolvency and Bankruptcy Code (“IBC” for short), a personal guarantor like Kabir does not have to wait to be pulled to the court. He can initiate his own CIRP not out of defeat or flight, but as a strategic move to reorganise his liabilities and reclaim control over the narrative.

What is a personal guarantee and who is a personal guarantor?

Before we learn about drafting and contesting this application, let us brush up on our basics.  

What is a contract of guarantee? 

As per section 126 of the Indian Contract Act, 1872, it is a contract to perform the promise or discharge the liability of a third person in case of his default. The person who gives the guarantee is called the ‘surety’; the person in respect of whose default the guarantee is given is called the ‘principal debtor’ and the person to whom the guarantee is given is called the ‘creditor.’

Who is a personal guarantor? 

In terms of IBC, section 5(22) of the IBC defines a personal guarantor as an ‘individual who is the surety in a contract of guarantee to a corporate debtor.’ 

Further, Rule 3(e) of the Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Rules, 2019 (“the Rules”) defines a guarantor as a debtor who is a personal guarantor to a corporate debtor and in respect of whom the guarantee has been invoked by the creditor and remains unpaid in full or part.

What is the legal framework to initiate the insolvency resolution process by a personal guarantor? 

At the outset, it is essential to clarify that a personal guarantor of a corporate debtor can file an application for insolvency resolution under section 94 of IBC. 

Let us read “debtor” as “personal guarantor” below and see what section 94 entails. 

Who can apply?

A debtor who has committed a default can file an application for insolvency resolution before NCLT either personally or through a resolution professional (“RP”). 

In the case of partnership firms, if the debtor is a partner in a firm, he/she cannot individually file for the firm unless all or a majority of partners file jointly.

For what type of debts can the application be filed? 

The application can only be made in respect of debts that are not classified as ‘excluded debts’ (e.g., liability to pay a fine imposed by a court or tribunal, liability to pay maintenance under any law, liability to pay damages for negligence, nuisance or breach of statutory or legal obligations, etc.) 

Who cannot apply?

In case a debtor is: 

(a) an undischarged bankrupt,
(b) already undergoing a fresh start process,
(c) in the middle of an insolvency resolution process, or
(d) going through a bankruptcy process.
he cannot apply

When does a debtor become ineligible to file an application  

A personal guarantor who has undergone an insolvency resolution process in the last 12 months cannot apply.

• Section 94 is read in consonance with the Rule 6 of the Rules above. 
• The application needs to be prepared in accordance with the Form A of the Rules.   

How to draft an application on behalf of a personal guarantor? 

Let us take a case in hand 

Mr. Kabir stood as a personal guarantor to a loan facility extended by India Bank Ltd. to Ayu Fabrics Pvt. Ltd., a company in which Kabir was a director and shareholder. Pursuant to a sanction letter dated 23rd March 2020, the Bank granted a term loan of Rs. 10 crores to Ayu Fabrics Pvt. Ltd., secured inter alia by a deed of personal guarantee executed by Kabir on 23rd March 2020. 

Owing to financial distress, Ayu Fabrics Pvt. Ltd. defaulted on making a repayment. Consequently, India Bank issued a demand notice under section 13(2) of the SARFAESI Act, 2002, on 23rd March 2022, calling upon the company and the guarantor to repay the outstanding dues. The company failed to rectify the default, leading India Bank to initiate insolvency resolution proceedings (IRP) against Ayu Fabrics Pvt. Ltd. under section 7 of the IBC. The Hon’ble NCLT admitted the petition by its order dated 23rd June 2022 and a resolution professional was appointed.

Following the admission of the IRP, the personal guarantor became liable to repay the dues in terms of the guarantee. Given the overwhelming debt burden, absence of sufficient assets to repay the dues, and continuing legal proceedings, the Applicant now seeks resolution of his insolvency under Part III of the IBC. 

I hope you have understood the facts well. But before we begin drafting, let us first know the rules when it comes to drafting. So you draft must- 

• Be in English, or if in another Indian language, include an English translation.
• Be typed in double spacing on the standard petition paper
• Have specified margins: 4 cm (top), 5 cm (left), and 2.5 cm (right).
• Be duly paginated, indexed, and stitched in paper book form.

What is needed to be filed along with the application? Here are the necessary components of a paper-form book. 

1. Index
2. Memo of Parties 
3. Synopsis 
4. List of Dates and Events  
5. Application under section 94 of the IBC r/w Rule 6 of the Insolvency and Bankruptcy (Application to Adjudicating Authority for IRP for personal guarantors to corporate debtors) Rules, 2016 
6. Exhibits (List of documents and correspondence relied upon by the Applicant in support of his case).
7. Affidavit verifying the application 
8. Vakalatnama

This application begins with a date, address of the NCLT where you propose to file this application and name and address of the corporate debtor.  

APPLICATION BY GUARANTOR TO INITIATE INSOLVENCY RESOLUTION PROCESS

21st July 2022

To,

The National Company Law Tribunal, Mumbai Bench,

MTNL Telecom Building,

Opp. G. D. Somani School, Somani Marg,

Cuffee Parade, Mumbai — 400005

From, 

Kabir A, 

Office No. 23, Sharma Industrial Estate, 

Goregaon East, Mumbai- 400063 

In the matter of Kabir A 

Thereafter, you start by stating the subject of this application and a short opening statement. 

Subject: Application to initiate insolvency resolution process with respect to Kabir A, under the IBC. 

Madam/Sir, 

I, hereby submit this application to initiate an insolvency resolution process in respect of Kabir A. 

For the sake of clarity, the entire application is divided into 4 parts. 

1. The first part consists simply of the particulars of the applicant such as personal and professional, his list of assets and whether he is acting as a guarantor for any other corporate debtor, annual income, bank account details, etc.   
2. The second part deals with the business particulars of the guarantor. Information such as the name of the business, details of registration, description of business, annual income, etc. It is pertinent to note that this part has to be filled up only if the guarantor is a partner in a firm/self-employed.  
3. The third part seeks particulars of debt such as total debt, amount of debt, date when debt fell due, date of default, unsecured debt, etc.  
4. The fourth part must contain particulars and a declaration about the resolution professional. Again, this has to be filled out only when the application is being filed by a resolution professional. 

Hope we now have an overview of the application form. 

So let us begin by providing all the necessary details. 

      PART-I

PARTICULARS OF THE GUARANTOR
Title and full name	Kabir A
Date of birth and email-ID	30th September 1983 [enter an email ID]
Any other name, if any, by which the guarantor is or has been known	N.A
Address	Present: [Enter residential address] Permanent: Same as present Business: Same as given in the cause title
Occupation/business/profession	The director of Ayu Fabrics Pvt. Ltd., i.e. the Corporate Debtor
Gross annual income in the previous financial year	Rs. 3,34,000/- (Rupees three lakhs thirty-four thousand only)
List of dependents with relationship and age	N.A
Details of bank accounts (including joint accounts): – Account Number – IFSC Code – Name and address of bank and branch	[Insert proper details here]
Identification numbers: Aadhaar – Passport – PAN – GSTIN	[Insert correct identification numbers here]
Contact numbers: – Residential – Mobile – Business	[Insert contact details here]
List of all assets and liabilities (including excluded assets): – Immovable – Movable (vehicles, shares, jewellery, mutual funds, etc.)	Here you need to add all the properties owned by the Applicant.  If he owns a the residential flat, he must put the address here.  Also mention investments in jewellery, shares, mutual funds, pension, insurance, etc. here along with the figures.
Details of directorships held in the last three years	If the Applicant holds a position of directorship in any other company besides the Corporate Debtor, state here.
Marital status	Married or unmarried, state here
Details of the guarantee given: – Name of the corporate debtor – Position in the corporate debtor (if applicable) – Corporate debtor’s CIN – Any personal security given – Evidence of invocation of guarantee	Here you need to convey the guarantee given by the Application. As he stands as a guarantor for Ayu Fabrics Pvt. Ltd., we will give details accordingly.  Name of the Corporate Debtor– Ayu Fabrics Pvt. Ltd. [insert CIN] [undergoing CIRP vide order of the NCLT dated 23rd May 2022] Position held with the Corporate Debtor– Director  Any securities held in corporate debtor for whom the guarantee is given– [Give details of residential flat, along with the value]  Was there an invocation of guarantee?Yes, the guarantee was invoked by the India Bank Ltd. (Lender) via notice date 23rd March 22 under section 13(2) of SARFAESI.
If not resident in India, details of an authorised representative for service in India	N.A.  If applicable in your case, give details as sought.

Kabir A, the Applicant here is neither a partner in a firm nor is he self-employed. So, we will skip Part II and move to Part III. 

PART-III

PARTICULARS OF DEBT (CREDITOR WISE)
1.	Name and address of creditor	India Bank Pvt. Ltd. having its branch office at Office No. 12, Ratna Estate, Goregaon (east).
2.	Total debt amount including interest	Rs. 6,35,00,987/- (Rupees six crore thirty five lakhs nine hundred and eighty seven)
3.	Amount of debt in default	Rs. 6,35,00,987/- (Rupees six crore thirty five lakhs nine hundred and eighty seven)
4.	Interest or Penalties, if any.	Details not available with the Applicant
5.	Date on which debt was due	23rd March 2022 (Date of issuance of notice under section 13(2) of SARFAESI, 2002)
6.	The date on which default occurred	23rd May 2022 (The date by which the outstanding was to be cleared as per the notice)
7.	Nature of debt	Secured and unsecured debt
8.	Name and address of the corporate debtor	Ayu Fabrics Pvt. Ltd.[insert its registered office address]
9.	Secured debt including particulars of security held, the date of its creation, its estimated value as per the creditor	Particulars of security- [State point wise- address of the residential flat given in security, estimated value].  Thereafter, you need to mention for what purpose such a security was created. Security was created in the capacity of personal guarantor by depositing the title deeds dated 03.09.1984 of immovable property in favour of India Bank for securing credit facilities such as a cash credit limit of Rs. 10 crores to meet the working capital requirement.
10.	Unsecured debt	Rs. 5,00,000 (Rupees five lakhs only)
11.	Details of retention of title arrangements in respect of goods to which the debt refers	N.A.
12.	Record of default with the information utility
13.	List of documents attached to the application in order to prove existence of debt and amount of default.	1. Sanction Letter of India Bank Ltd. 2. Notice dated 23rd March 2022 issued by the India Bank under section 13(2) of SARFAESI.  3. Order dated 22nd June 2022 passed by the Hon’ble NCLT admitting the CIRP petition against Ayu Fabrics Pvt. Ltd. filed by India Bank Ltd.
14.	Statement by guarantor in respect of excluded debts	I, Kabir A hereby state that the debts for which the IRP application process is filed do not include any- 1.  Liability to pay a fine imposed by a court or tribunal;  2. Liability to pay damages for negligence, nuisance or breach of a statutory, contractual or other legal obligation; 3. Liability to pay maintenance to any person under any law for the time being in force; 4. Liability in relation to a student loans Any other debt prescribed under section 79(15)(e) of the IBC

As the present application is being filed by Mr Kabir A himself, we need to fill PART IV as well. 

Now you need to make a mandatory averment with respect to the court fee. 

Mr Kabir A paid the requisite fee of Rs. 2000/- (Rupees two thousand only) for this application through Bharatkosh on 21st July 2022. 

I, Kabir A, currently residing at [insert his residential address], do hereby declare and state as follows: 

1. In respect of this application for IRP, I have relied on the documents specified below: 

1. Sanction letter of India Bank Ltd. 
2. Details of security given to the bank for securing debt; 
3. Notice dated 22nd March 2022 issued by the India Bank Ltd. under section 13(2) of the SARFAESI, 2002. 
4. Order dated 22nd June 2022 passed by the Hon’ble NCLT Mumbai for initiation of CIRP by India Bank Ltd. against Corporate Debtor Ayu Fabrics Pvt. Ltd. 
5. Income Tax Returns of last 3 years; 
6. Statement of affairs of the guarantor summarising assets, liabilities and net worth. 
7. Last available bank statement of the Applicant; 
8. PAN Card and Aadhar Card. 

The contents of the said application along with the said documents are true, valid and genuine to the best of my knowledge, information and belief and nothing material has been concealed therefrom. 

Date: 21st June 2022

Place: Mumbai

Sd/-

Signature of the Applicant

VERIFICATION

I, Kabir A, do hereby verify that the contents of this application are true and correct to my knowledge and belief. Nothing is false and no material has been concealed therefrom. 

Verified in Mumbai on 21st July 2022 

    Sd/-

Signature of the Applicant

After providing relevant details and information, we shall begin drafting the application. 

The application begins with a cause title and names of the parties. 

BEFORE THE NATIONAL COMPANY LAW TRIBUNAL

        MUMBAI BENCH

         IN

       COMPANY PETITION NO. __ OF 2023

versus

At the beginning, you must mention the relevant provisions under which this application is being filed. 

APPLICATION UNDER SECTION 94 OF THE INSOLVENCY & BANKRUPTCY CODE. 2016 READ WITH RULE 6 OF THE INSOLVENCY AND BANKRUPTCY (APPLICATION TO ADJUDICATING AUTHORITY FOR INSOLVENCY RESOLUTION PROCESS FOR PERSONAL GUARANTORS TO CORPORATE DEBTORS) RULES, 2019

MOST RESPECTFULLY SHOWETH: 

It starts with briefly stating facts- mainly on how the account of Ayu Fabrics Pvt. Ltd. was classified as a non-performing asset and that the Applicant is not a wilful defaulter. 

1. The Applicant has given his guarantee for the Corporate Debtor being Ayu Fabrics Pvt. Ltd. to the India Bank Pvt. Ltd. 
2. The account of Ayu Fabrics Pvt. Ltd. on behalf of which the Applicant had given personal guarantee was classified as a non-performing asset as of 22nd March 2022, by the India Bank Ltd. 

A lender is classified as a wilful defaulter when he has the means to repay but yet he fails to do so. Thus, to prove his bonafide, it is pertinent to aver a clarification to this effect. 

3. The Applicant further states that he is not a wilful defaulter under the provisions of the Reserve Bank of India Act, 1934. 

When a lender defaults in making payments, a bank first issues a notice under the provisions of SARFAESI classifying such a lender as a wilful defaulter. This is a crucial step in a debt recovery by a bank thus you need to make a statement to this effect in this application.   

4. India Bank Ltd. had invoked the guarantee by issuing notice under section 13(2) of SARFAESI, 2002 on 22nd March 2022 against the Applicant for discharging their liabilities.  

You also need to stipulate that CIRP proceeding is initiated against Ayu Fabrics Pvt. Ltd. and that an RP was appointed by NCLT, Mumbai. You must also exhibit the consent given by the RP to this application. 

5. The Hon’ble NCLT, Mumbai vide its order dated 22nd June 2022 initiated CIRP against the principal borrower, Ayu Fabrics Pvt. Ltd. 
6. The Applicant has proposed the name of the Resolution Professional, Mr T. Shankaran [give his registration number here]. Mr T. Shankaran is willing to act as an RP in the present matter as well. His consent is recorded and annexed as an exhibit to this application.

 It is always prudent to give a declaration that the Applicant is not disentitled, under any circumstances to make an application under this section 94 of the IBC.   

7. The Applicant submits that- 

1. The Personal Guarantor has committed default in repayment of debts payable to its creditors; 
2. All the debts mentioned in the captioned petition are not excluded assets. 
3. The Personal Guarantor is not an undischarged bankrupt, not undergoing a fresh start process, not undergoing insolvency IRP or bankruptcy process. 
4. No application under Chapter III of the IBC has been admitted in respect of the personal guarantor during 12 months preceding the date of submission of the present application. 
5. All particulars of Form A are complete. 

8. The Personal Guarantor/Applicant shall rely on the documents annexed hereto and craves of this Hon’ble Court to rely on any additional document or amend this application as and when required in the interest of dispensation of justice. 
   
9. LIMITATION

Today morning I woke up to an update that a court may reject an application if it is time-barred even if it is not objected to by the opposite party. Thus an averment to this effect becomes indispensable to this application. 

It is submitted that this application is well within the period of limitation as prescribed under the provisions of the Limitation Act, 1963.

10.  JURISDICTION

As the CIRP petition is filed before this Hon’ble Tribunal, the Applicant declares that the subject matter of this application also falls within the jurisdiction of this Hon’ble Tribunal. 

PRAYERS

Now clearly convey what you are seeking from the Hon’ble Tribunal. 

In the light of the above facts and circumstances, the Applicants humbly pray that this Hon’ble Tribunal may be pleased to: 

1. Admit the captioned petition; 
2. Pass an order initiating IRP with respect to the Applicant; 
3. Ad-interim and interim reliefs in terms of clauses A and B; 
4. Any other orders/directions as this Hon’ble Tribunal may deem fit. 

At Mumbai 

Dated this 21st July 2022

What are the exhibits that you may annex? 

In this case, when you attach all exhibits it ensures that the application is complete, transparent and that you are a bonafide applicant/petitioner. It provides the NCLT with the necessary documents to verify the guarantor’s claims and assess the merits of the application. 

When you miss out on attaching any relevant documents, it raises doubts in the mind of an adjudicating authority and you give a ready-made loophole to harp on to your opponent. From my experience in litigation, I can vouch that it is more prudent to exhibit the document and build your argument on that instead of concealing it. Trust me, it reflects poorly on a lawyer and is highly embarrassing. 

So here is a list of all the documents you need to annex. I shall also explain why are these documents relevant. 

1. Sanction Letter; 

A sanction letter is a document which compiles the original terms and conditions under which the loan facility was provided. Since this document provides for personal guarantee, it needs to be annexed. 

2. Notice issued by the lender under section 13(2) of SARFAESI 2002; 

This is to show that the lender has taken the requisite steps to recover the loan amount and that the guarantor is aware of the default and his liability.

3. An order passed by the NCLT wherein the NCLT admitted the CIRP petition filed by a a financial creditor against the corporate debtor; 

This confirms that CIRP has been commenced against the corporate debtor, thus triggering the liability of the guarantor under the IBC.

4. Copy of the income tax returns with detailed computation of the income of the guarantor for the previous three years; 

This shall provide a fair assessment of the repayment ability and financial status of the personal guarantor. 

5. Copy of the personal guarantee contract; 

This is the most crucial document which forms the basis of a personal guarantor’s liabilities and obligations. 

6. Copies of entries in a bankers’ book in accordance with the Bankers Books Evidence Act, 1891; (This is annexed by the opponent)

This is needed to prove the existence of debt and that it is due. 

7. The latest and complete copy of the financial contract reflecting all amendments and waivers to date; 

This shall help the authority identify and take cognisance of waivers or modifications. 

8. Copies of ownership and title documents for all assets belonging to the personal guarantor; 

This helps assess the net worth of a personal guarantor for repayment. 

9. Copy of the authorisation, wherever required under this form; 

If filed by any person other than the personal guarantor, such an authorisation shall establish the locus standi of such other person. 

10. Proof that the application fee has been paid; 

This ensures procedural compliance. 

11. Documentary evidence of all information sought in the Form A of the Rules;  

This is to ensure transparency and accuracy. 

12. A statement of affairs of the guarantor made up to a date not earlier than seven days from the date of the application including the following information and supporting documents, namely:-

(i) guarantor’s assets (along with the excluded assets) and liabilities for the previous three years;

(ii) secured and unsecured debts (inclusive of excluded debts) with names of the creditors, and other details of the previous three years;

(iii) particulars of debt owed by a guarantor to associates of the corporate debtor for the previous three years;

(iv) guarantees given in relation to any of the debts of the corporate debtor, and if any of the guarantors is an associate of the corporate debtor;

(v) financial statements with all annexures and schedules for the business owned by the guarantor, or of the firm in which the guarantor is a partner, as the case may be, for the previous three years, if applicable;

(vi) wealth tax statements, if any, filed by the guarantor, for the previous five years;

(vii) income statement of the guarantor, for the previous three years;

(viii) payment of indirect taxes including GST for the previous three years.

  Needless to say, this shall give a holistic view of the financial position of the guarantor. 

What are the steps followed by the NCLT for adjudication? 

• Filing of application and interim moratorium 

Upon the filing of an application before the NCLT, an interim moratorium commences and a resolution professional is appointed. 

The interim moratorium shall commence on the date of the application and shall seize effect on the date of admission of such application. During this period- 

(i) Any legal action or proceeding pending in respect of any debt shall be deemed to have stayed; and 

(ii) The creditors of the debtor shall not initiate any legal action or proceedings in respect of any debt. 

• Appointment of a resolution professional 

In case the application is filed by an RP, the NCLT shall direct the Insolvency and Bankruptcy Board of India (“the IBBI”) to confirm that no disciplinary proceedings are pending against the RP. The Board shall revert within 7 days from the date of such a direction either confirming or rejecting his appointment.   

In case the application is filed by the debtor himself and not through RP, the NCLT shall direct the IBBI to nominate an RP within 7 days from the date of filing.  Pursuant to the nomination of the Board, an RP is appointed. 

Once the RP is appointed, the NCLT shall provide a copy of the application for the insolvency resolution process. 

Section 98 also provides that an application to replace the RP may be filed if the debtor deems it necessary.

• Examination of the application

Within 10 days of his appointment, he is supposed to examine the application and prepare a report to the NCLT. Such a report shall recommend approval or rejection of the application. 

To prepare such a report, the RP shall seek information from the concerned person/s and such a person must revert within 10 days. 

• Admission or rejection of an application

The NCLT shall admit or reject the application within 14 days from the date of submission of the report. 

Once the application is admitted: 

The NCLT may issue instructions to the debtors and creditors to negotiate and come up with a repayment plan. 

In case the application is rejected based on the report:

The order passed by the NCLT shall record that the creditor is free to file for bankruptcy order.     

• The moratorium shall commence once the application is admitted and during such period-

1. any pending legal action or proceeding in respect of any debt shall be deemed to have been stayed;
2. the creditors shall not initiate any legal action or legal proceedings in respect of any debt;
3. the debtor shall not transfer, alienate, encumber or dispose of any of his assets or his legal rights or beneficial interest therein

• Inviting and collating claims

1. Within seven days of the commencement of the moratorium, the NCLT shall issue public notice inviting claims from the creditors. 
2. Pursuant to the said public notice, the creditors shall register their respective claims with the RP. 
3. Upon completion of the notice period and receipt of claims, the RP prepares a list of creditors.  

• Preparation of repayment  plan

The debtor, with the RP, must prepare a repayment plan proposing debt or business restructuring.

The plan may authorize the RP to operate the debtor’s business, realize assets, or manage or dispose of funds.

The plan should include justification and reasons for creditor approval, fee details for the RP and any other required provisions.

• Report on the repayment plan 

The RP shall prepare a report on such a resolution plan and submit it to the NCLT. 

Thereafter, a meeting is summoned and conducted of the creditors wherein the repayment plan is discussed in detail and voted upon. More than 3/4th of creditors in value need to approve the repayment plan. The RP shall prepare a report of this meeting along with the notice of decisions taken and submit it to the NCLT. 

• Order of the NCLT

Upon the completion of the aforesaid steps and various reports furnished by the RP, the NCLT shall pass an order approving or rejecting the repayment plan.  

• The RP shall be responsible for overseeing the implementation and supervision of the repayment plan. Once the repayment plan has been fully implemented, the RP shall give notice of the same to the NCLT and apply for a discharge order. 

What renders an application defective?

1. Incomplete or Improper Documentation

• Failure to place on record relevant documents as per listed under the Rules; 

2. Pending Application

• If another insolvency resolution or bankruptcy proceeding is already pending against the debtor, a new application under section 94 may be considered invalid.

3. Application Not in Prescribed Form

• Not following Form A as prescribed under the Rules can lead to technical defects.

4. Absence of Consent from Resolution Professional

• The application must include a written communication from a proposed Resolution Professional (RP) indicating their willingness to act in the matter.

5.  If the application is time barred.

What are the Orders that can be passed on such an application?  

After considering facts and documents placed on record, the NCLT can pass the following orders: 

1. Initiate IRP against the Applicant/Personal Guarantor by admitting the application; 
2. Declare moratorium in relation to all the debts from the date of passing of order i.e. from the date of admission of the application till the end of period of 180 days and shall cease to have effect at the end of the period of 180 days; 
3. Direct the RP appointed during the CIRP to issue and publish a public notice inviting claims from the creditors; 
4. Direct debtor to prepare a repayment plan in consultation with RP; 
5. Direct the RP to submit a repayment plan along with his report on the plan; 
6. Direct the RP to summon meeting of the committee of creditors, if required. 

In case the RP does not deem it necessary, he must record reasons for the same. 

7. Direct that the meeting shall be held as per section 108, 109, 110 and 111 of the IBC;  
8. Direct RP to prepare periodic reports and submit it with the NCLT every 30 days. 

Final thoughts

In the realm of insolvency, filing a IRP petition as a personal guarantor is more of a calculated and strategic step than a defensive legal move than. As the law continues to evolve, so does the role of personal guarantors, from passive buffer to active participants in the resolution of corporate debt.

Drafting a CIRP petition under such circumstances requires more than just legal writing; it seeks accuracy, clarity of grounds pleaded and a firm understanding of the legal terrain, especially the interplay between section 60 of the IBC, NCLT procedure and relevant case laws. 

For personal guarantors facing the heat of enforcement, initiating insolvency proceedings can provide a sigh of relief and legal protection and tread a path for collaborative resolution. But the power of that petition lies not just in filing it—but in drafting it right.

FAQs

1. Can a personal guarantor initiate CIRP against the corporate debtor?

Yes. As per section 7 of the IBC, a personal guarantor is a financial creditor and thus can initiate CIRP against the corporate debtor if there is a default.

2. Which forum has jurisdiction for such a petition?
   When the CIRP petition involves corporate debtors even when the petitioner is a personal guarantor, the adjudicating authority is NCLT. 

3. Is the consent of other creditors or the principal borrower required?
   No. Neither the IBC nor the Rules require a personal guarantor to seek consent from the principal borrower or other creditors. Hence, when a default occurs, a personal guarantor can independently file a CIRP petition. 

4. Say a CIRP petition against the corporate debtor is admitted, does this discharge the liability of the personal guarantor?
   No. It does not work like that. Unless the resolution plan specifically absolves the liability, a personal guarantor always remains liable.  

5. Is there a minimum default amount required to file such a petition?
   Yes. The current threshold for initiating CIRP is a default of ₹1 crore or more.

6. What is the court fee payable in case of such an application?  

Rs. 2000/- (Rupees two thousand)

7. To whom is this application to be served?

The application is to be served upon every financial creditor and the corporate debtor for whom the guarantor is a personal guarantor.  

8. Once filed, can such an application be withdrawn? 

The NCLT may permit the withdrawal of the CIRP petition- 

(a) before its admission, on a request made by the applicant; 

(b) after its admission, on the request made by the applicant with the consent of 90%, of the creditors 

Withdrawal can be initiated by making an application before the NCLT. 

9. What is the limitation prescribed to file an application under this section? 

An application under this section shall be filed within a period of 3 years from the date of default.